This Isn't 'The Wrong Man'

Few things are more annoying in this stock market world than seeming injustice, the conviction of the wrong man, the freeing of the hardened scofflaw. Yet that's what it looks like happened in the cases of Buffalo Wild Wings (BWLD) and Panera Bread (PNRA), two household restaurant names that reported last night.

Buffalo Wild Wings blew out the numbers, did more than twice the comparable store numbers I was looking for and executed flawlessly. I emphasize: flawlessly. It was truly a remarkable quarter in every way.

Yet its stock is down more than 20 points, or 14%.

Panera missed estimates on the top and bottom lines and lowered the boom on its forward earnings guidance. It was a classic disappointment vs. expectations. Yet its stock is up more than $5, or 3.5%.

This is an outrage, right? It's indiscriminate justice bundled with mistaken identity and all around fickleness, no?

Wrong!

It makes all if the sense in the world if you know where the stocks were coming from going into the quarter and what was expected of the companies behind them.

BWLD galloped to $167 from $96 in the last year. That's right, this stock was in the $90s in July of 2013. It had run up to $167 yesterday from $150 two weeks ago. The advance had occurred despite a sluggish restaurant group and a downbeat period for retail sales.

Panera, on the other hand, just hit its 52-week low of $142 five days ago. It's been a miserable performer of late and was down 25% for the year going into the print.

In short, people had turned on Panera big time after a series of misses. They had gone all ga-ga for BWLD after a series of wins. Buffalo Wild Wings had, like Starbucks (SBUX), become the star pupil, the valedictorian in the group. Panera, on the other hand, was struggling to get its restaurant degree.

Buffalo Wild Wings, as usual, delivered its picture-perfect performance, but failed to guide up its numbers in any way that pleased Wall Street which had come in, again like Starbucks, with sky-high expectations, even loftier than the amazing numbers she delivered. There was seemingly nothing CEO Sally Smith could do to satisfy the analyst jackals who follow her stock.

And, yes, Panera failed to live up to expectations. But like Buffalo Wild Wings, where there were expectations for a super-de-duper estimate increase, there were fears that Panera would slash next year's earnings and be very downbeat about the future. So you can imagine their surprise when Panera reported 0.4% transaction growth, the first increase in six quarters and intimated that things had only improved since the quarter's end. Plus, CEO Ron Schaich let it be known for the first time that Panera 2.0, the re-invention of Panera that's being rolled out in Charlotte, N.C., is producing some real lift in the numbers. The 2.0 rollout could be more aggressive than people thought. At the same time, Shaich said that he's going to put some debt on the clean balance sheet to continue what now amounts to a much more aggressive buyback, with 1.7 million shares of the 28.8 million shares outstanding crunched this quarter, while he expands his improved store roll out and commitment to improved technology. That's a huge statement of confidence from a seasoned restaurateur

So, was this a miscarriage of justice? Does the market have the wrong man? Hardly. Companies that do a great job with stocks that reflect that great job, whether it be Starbucks or Buffalo Wild Wings, get taken down harshly. Companies that simply aren't as bad as they used to be get rewarded.

Don't worry, though. Starbucks has already stabilized and is coming back from its whupping last week. I expect Buffalo Wild Wings to do the same. And Panera? Let's just say it's done going down and may well be embarking on a multi-year run back to its old heights, a good sign indeed for a terrific restaurant chain that has, apparently, only momentarily lost its way.

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